By: Dimple Sankhla and Ramesh Patel
On July 4, 2025, President Donald J. Trump signed the One Big Beautiful Bill Act (H.R. 1) into law, marking a significant overhaul of the U.S. tax code. This comprehensive legislation, passed by the House in May 2025 and the Senate in July 2025, permanently extends provisions of the 2017 Tax Cuts and Jobs Act (TCJA), introduces new tax incentives, and modifies government spending. With an estimated cost of $5 trillion over ten years, offset by reductions in federal programs and the elimination of various green energy tax credits from the Inflation Reduction Act, this Act ensures the tax system avoids reverting to 2017 rules. This article outlines the key provisions and their implications for businesses and high-net-worth individuals, offering strategic guidance to optimize financial outcomes.
Key Provisions for Individual Taxpayers
The One Big Beautiful Bill Act introduces several permanent and temporary changes that significantly impact individual taxpayers, particularly those with higher incomes or substantial assets.
- Permanent Tax Rates: The TCJA’s seven tax brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%) are now permanent, providing stability for long-term financial planning. This benefits high-net-worth clients by maintaining predictable income tax rates.
- Senior Deduction and Elimination of Personal Exemptions: Personal exemptions are permanently eliminated. In their place, a $6,000 deduction for taxpayers aged 65 and older is available from 2025 through 2028, phasing out for modified adjusted gross income (MAGI) exceeding $75,000 (single) or $150,000 (joint).
- Increased Standard Deduction: The TCJA’s enhanced standard deduction is permanent and will adjust annually for inflation. For 2025, the amounts are $31,500 for joint filers, $23,625 for heads of household, and $15,750 for single or married filing separately taxpayers, reducing taxable income for non-itemizers.
- State and Local Tax (SALT) Deduction Cap Increase: The SALT deduction cap rises from $10,000 to $40,000 in 2025, increasing by 1% annually through 2029, before reverting to $10,000 in 2030. For taxpayers with MAGI above $500,000 (adjusted annually), the cap is reduced by 30%. This is particularly advantageous for clients in high-tax states like California.
- Enhanced Child Tax Credit (CTC): The CTC is permanently increased to $2,200 per qualifying child, subject to inflation adjustments. The refundable portion (Additional Child Tax Credit) remains at $1,400 ($1,700 for 2025). A valid Social Security number is required for the taxpayer, spouse (if married), and child to claim the credit.
- Increased Estate and Gift Tax Exemption: Effective 2026, the estate and gift tax exemption rises to $15 million per individual ($30 million for couples), with annual inflation adjustments. This facilitates tax-efficient wealth transfers, such as gifting S-corporation shares, a strategy relevant for clients planning generational wealth transfers.
- New Deductions for Earned Income:
- Tips Deduction: A deduction of up to $25,000 for cash tips is available through 2028, without requiring itemization. It phases out for MAGI above $150,000 (single) or $300,000 (joint), benefiting service industry workers.
- Overtime Pay Deduction: Overtime pay under the Fair Labor Standards Act is deductible up to $12,500 (single) or $25,000 (joint) through 2028, also without itemization. A Social Security number is required, with the same phase-out thresholds.
- Automobile Loan Interest Deduction: Interest on car loans for vehicles purchased after 2024 is deductible up to $10,000 annually from 2025 to 2028, available to both itemizers and non-itemizers.
- Charitable Deductions Expanded: Starting in 2026, non-itemizers can deduct charitable contributions up to $1,000 (single) or $2,000 (joint). For itemizers, deductions are allowed for contributions exceeding 0.5% of adjusted gross income (AGI).
- Return of Pease Limitation: For taxpayers in the 37% tax bracket, the Pease limitation on itemized deductions returns after 2025, potentially reducing the value of deductions for high-income clients.
- Trump Accounts for Newborns: The Act introduces tax-deferred “Trump Accounts” for newborns, seeded with a $1,000 federal deposit and allowing annual contributions up to $5,000. Withdrawals for education, home purchases, or business startups are taxed at capital gains rates, offering a valuable tool for long-term savings.
Key Provisions for Businesses
The Act includes significant benefits for businesses, particularly pass-through entities like S-corporations.
- Permanent 100% Bonus Depreciation: Effective for qualified business property acquired after January 19, 2025, 100% bonus depreciation allows immediate expensing of capital investments, such as equipment or vehicles, enhancing cash flow for growth-oriented businesses.
- Immediate R&D Expensing Restored: Under prior law, taxpayers are required to amortize research and experimental expenditures. Prior to 2022, a direct expense election was available. The Act permanently reinstates the deduction for domestic research and experimental expenditure costs incurred after 2024. Taxpayers can elect whether to deduct or amortize the expenditures, though the requirement to amortize under prior law is suspended while the deduction is available. Additionally, small businesses with average annual gross receipts of $31 million or less would be able to elect to claim the deduction for Domestic R&D Costs retroactively to 2022.For Foreign R & D Costs, there are no changes (for large and small businesses) under the Act and still subject to capitalization and amortize over 15 years.
- Expanded Qualified Small Business Stock (QSBS) Benefits:
- Gain exclusion is now tiered: 50% for stock held over three years, 75% for over four years, and 100% for over five years.
- The per-issuer cap increases from $10 million to $15 million, with inflation adjustments starting in 2027.
- The corporate gross assets ceiling rises from $50 million to $75 million. These changes apply to stock issued or acquired after July 4, 2025, benefiting startups and growing S-corporations.
- Restored Business Interest Deduction: TCJA’s more generous business interest deduction limit is permanently reinstated for tax years beginning in 2025, facilitating financing for business expansion. This provision, under Section 163(j), allows businesses to deduct interest expenses up to 30% of adjusted taxable income plus business interest income, with enhanced flexibility for real property and farming businesses to elect out of the limitation.
- Permanent Qualified Business Income (QBI) Deduction: The TCJA’s 20% deduction for qualified business income (QBI) under Section 199A, applicable to pass-through entities such as S-corporations, partnerships, and LLCs, is now permanent, ensuring long-term tax savings. The Act expands eligibility by relaxing restrictions for specified service trades or businesses (SSTBs), such as law, accounting, or consulting firms, previously subject to phase-out thresholds. For 2025, the phase-out thresholds for SSTBs increased to $609,350 (single) or $1,218,700 (joint), adjusted annually for inflation, allowing more high-income professionals to claim the deduction.
- International Tax Modifications:
- The deemed paid Foreign Tax Credit increases to 90%, benefiting businesses with international operations.
- The Global Intangible Low-Taxed Income (GILTI) deduction is reduced to 40% and renamed “Net CFC Tested Income.”
- The Base Erosion and Anti-Abuse Tax (BEAT) rate is set at 10.5%. These changes require careful review for clients in the import/export sector with foreign income.
- Elimination of Green Energy Credits: Most clean energy tax credits from the 2022 Inflation Reduction Act, including those for clean vehicles, energy-efficient homes, and alternative fuel refueling, are terminated after 2025, requiring businesses to adjust strategies if reliant on these incentives.
Under the Act, the affected credits include the following (termination generally after 2025):
- Previously owned a clean vehicle credit.
- Clean vehicle credit.
- Qualified commercial clean vehicle credit.
- Alternative fuel refueling property credit.
- Energy-efficient home improvement credit.
- Residential clean energy credit; and
- New energy-efficient home credit.
Strategic Planning Recommendations
The One Big Beautiful Bill Act presents both opportunities and complexities, with many provisions effective immediately or retroactively. To maximize benefits, consider the following actions:
- For Individuals:
- Utilize temporary deductions (tips, overtime, automobile loan interest) before their 2028 expiration, ensuring proper documentation for compliance.
- Leverage the increased estate and gift tax exemption for wealth transfers, such as gifting non-voting S-corporation shares, requiring updated valuations for IRS Form 709 compliance.
- Establish Trump Accounts for children or grandchildren to benefit from tax-deferred growth, ideal for education or business planning.
- For California clients, optimize the temporary SALT deduction increase, planning for its reduction in 2030.
- For Businesses:
- Accelerate capital investments to take advantage of 100% bonus depreciation and immediate R&D expensing, particularly for S-corporations developing new products.
- Review eligibility for QSBS and QBI deductions to minimize tax liabilities, ensuring compliance with updated criteria. For QBI, verify W-2 wages and qualified property to maximize the deduction, especially for SSTBs benefiting from higher phase-out thresholds.
- For businesses with international operations, analyze the impact of GILTI, Foreign Tax Credit, and BEAT changes to optimize global tax strategies.
- Adjust business plans to account for the elimination of green energy credits, exploring alternative cost-saving measures.
What's Next?
The One Big Beautiful Bill Act is comprehensive, with many provisions effective immediately or even retroactively. This makes it an ideal time to review your financial plans and strategies. Our team is here to help you understand these changes and ensure you're making the most of the opportunities available. Please feel free to reach out to us with any questions about how this Act impacts you or your business.
Disclaimer
This communication is provided for informational purposes only and does not constitute legal or tax advice. For guidance specific to your situation, please consult with our office directly.
